The board of Bengaluru-based IT services company Mindtree is set to meet on Wednesday to consider the buy-back of shares amid a hostile takeover bid by engineering behemoth Larsen & Toubro.
The experts believe that the move is aimed to increase the cost of acquisition for the L&T. “I don’t think that it can prevent the hostile takeover. It can increase the cost of acquisition for the bidder. And that is the route they seem to take,” said Amit Tandon, CEO and Founder of Institutional Investor Advisory Service (IiAS).
As corporate action like a buyback usually pushes up the share price, many analysts have seen it as an attempt by the management to make it costlier for any acquirer to take control of the company, apart from rewarding existing shareholders.
Tandon also lashed out the Mindtree management for what he said they were “using company’s money to hold on to their positions in the management.”
At a presser aimed at garnering the public opinion in its favour, the management of the company said that they have many alternatives to block the deal. However, they didn’t disclose any of the expected moves that they would plan to thwart the L&T bid.
The company also stated its position has been supported by one of its foreign institutional investors (FIIs) – Nalanda Capital, which owns 10.61% of the stake in the company through two of its funds – Nalanda India Fund Limited (8.87%) and Nalanda India Equity Fund Limited (1.65%).
L&T, in a BSE filing, had stated that it intends to buy 5.13 crore shares in the tech company at the offer price of Rs 980 per share.
L&T has also agreed to buy 20.15% stake of Café Coffee Day owner VG Siddhartha for Rs 3,269 crore in an all-cash deal, according to the statement issued by the company on Monday. The company has also agreed to buy a further 15% stake of the company from the markets from various shareholders, both retail and institutional, at Rs 2,434 crore. Both transactions cost Rs 5,703 crore for the buyout of 5.82 crore shares of Mindtree, that ultimately triggered the open offer.
As of now, only 20.15% of the stake, which L&T has agreed to buy from Siddhartha.
If the open offer is fully subscribed, L&T would control 66.15% stake in the Mindtree, paying out Rs 10,733 crore for the move, which has been vehemently opposed by the Mindtree promoters, including Krishnakumar Natarajan (executive chairman), Subroto Bagchi (co-founder), Rostow Ravanan (CEO) and Parthasarathy N.S. (executive vice chairman and COO).
As of date promoter group hold 13.32% of the company’s shareholding, while remainder rests with the public. Of the total shareholding of the company, 50.57% is held by the institutional investors which include -- Nalanda India Fund, Amansa Holdings and Vangaurd among others.